IBM on Tuesday said it is experimenting with a new cryptocurrency that is directly tied to the U.S. dollar, in a bid to avoid the pricing volatility associated with other digital currencies.
The tech giant is partnering with a startup called Stronghold to launch a “stable coin,” which will serve as a “tokenized representation” of the U.S. dollar. Consumers will be able to exchange their dollars for Stronghold coins on a 1-to-1 basis, and all cash exchanged in the transactions will be deposited at banks insured by the Federal Deposit Insurance Corp.
“As the name suggests, a stable coin is a digital token that has low price volatility because it is pegged to an underlying fiat currency,” Jesse Lund, vice president of global blockchain market development at IBM, said in a blog post. “Thus, it would work well for practical applications involving payments on a blockchain network as a store of value, a medium of exchange and unit of accounting for routine and everyday transactions of both large and small values.”
“As applications that make use of blockchain and stable coins become more mainstream, they can help provide merchants, consumers and global suppliers with cheaper, better, faster and more secure alternatives to cash, credit cards, debit cards and wire transfers,” Lund added.
Leading cryptocurrencies such as Bitcoin and Ethereum are not regulated by any government or tied to any federally-issued currency. After experiencing unprecedented growth in 2017, Bitcoin dropped from an all-time high of more than $19,000 last December to roughly $7,300 as of Tuesday amid mounting government scrutiny and fraud concerns.
IBM’s Lund said stable coins are a safer option than other cryptocurrencies because they are not as susceptible to exchange rate volatility or tied to an unregulated, anonymous marketplace.
A leader among companies seeking business applications for blockchain technology, IBM on Tuesday said it would partner with Columbia University in New York to launch a jointly-operated Center for Blockchain and Transparency.